Apple's troublesome taxes

We get to the core of Apple's peculiar tax situation.

by Arun Kakar

Published: 06 Dec 2017

Last Updated: 06 Dec 2017

Ireland has just found itself in the odd position of receiving $13bn in tax that it didn’t ask for and apparently doesn't want. The money comes from Apple, following a decision by the European Commission last year forcing the tech giant to repay what it says Apple owes the Irish government over the course of several years. Needless to say, the iPhone maker is a bit of a crossroads when it comes to setting out its future tax operations.

So, what is going on?

Last year, the EU commission found that Apple was getting special treatment from the Irish government in which it would pay between a reported 0.005% to 1% of tax. This amounted to unlawful state aid, and it was shown that Apple was getting special treatment from the Irish government that enabled it to pump as much as two thirds of its global profits through the subsidiary. EU competition chief Margrethe Vestager slammed Apple with the $13bn bill, roughly as much as the entire country’s health budget.

Why don’t the Irish want this?

With a corporate tax rate of 12.5% that's among the lowest in Europe, Ireland’s reputation of attracting big multinationals may well suffer as a result of this ruling. Ireland’s economy has benefited from inward investment as firms exploit loopholes to move their profits off to tax havens around the world. Dublin and Apple have both vowed to take the commision to court, with Tim Cook calling the case ‘total political crap.’ Apple must now put the owed money into a blocked bank account while it awaits decisions on its appeal.

What are the chances of Apple taking its cash back home?

If this had been asked a month ago, then the answer would be ‘no chance whatsoever’, but all of a sudden it could be very likely indeed. The US has one of the highest corporate tax rates in the world at 35%, but this could change as Republicans look to slash it down to 14.5%. The FT reports today that this would give Apple a potential $47bn benefit as the company repatriates the cash. Details of the tax legislation are still being finalised, but if it were to pass (which looks likely) and Apple were to bring their profits back stateside, it is estimated that it would pay $31.4bn in tax as opposed to the $78.4bn of receipts under the current law. The number would fall to $29.3bn if it were to lose its appeal against the EU commission.

When asked at an investor conference this year about what the company would do if the US tax rate was lowered, Apple CFO Luca Maestri said: ‘Obviously we’re looking to to bring the cash back. If and when reform happens, it gives us more flexibility.’

Will other multinationals follow suit?

Almost certainly. US companies held roughly $1.3 trillion overseas to escape US taxes according to Moody’s. Apple is being singled out because it has by far the most cash stored away, with its $246.1bn, dwarfing the next highest company Microsoft’s $131.2bn. Wall Street has been pressuring Congress to lower the tax rate, with those in favour arguing that it it could lead to more investment and employment. Those against however say that firms would simply funnel it into dividends and stock buybacks. The rest of us will just wait and see...